Scrutiny on the basis of AIR

Income Tax Department nowadays selects almost all cases for scrutiny assessment under section 143(2) of Income Tax Act 1961 based upon AIR(Annual Information Return) transactions or through CASS. It is sometimes seen that when a case is selected for scrutiny assessment on the basis of AIR transactions, assessing officer also sometime tend to make additions on grounds other than AIR transactions like on the basis of inadequate withdrawals etc or on the basis of estimated additions.

Where a case is selected for scrutiny assessment on the basis of AIR transaction then the notice u/s 143(2) should be stamped with “the words AIR case” and the scope of enquiry of scrutiny assessment in such case should be only limited to such AIR transactions and no addition should be made on the basis of any other grounds as it has been clarified by CBDT in its instruction F.No.225/26/2006-ITA.II (Pt.) dated 08-08-2010.

It has been further stated in the said instructions by CBDT that a case may be taken up for wider scrutiny with the approval of the administrative Commissioner, where it is felt that apart from the AIR information there is a potential escapement of income more than Rs. 10 Lacs.

Thus in case of scrutiny assessment where the case is an AIR case i.e selected on the basis of AIR transaction the scope of enquiry should be limited towards such AIR transactions only.

The above said instruction of CBDT is produced here below for ready reference of all concerned:

F.No.225/26/2006-ITA.II (Pt.)

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

New Delhi, dated the 8th September, 2010

To

All Chief Commissioners of Income Tax

All Directors General of Income Tax

Sir/Madam,

Subject: Selection of cases for scrutiny on the basis of data in AIR returns and subsequent assessment proceedings-regarding.

Reference is invited to Board’s letter of even number dated 23rd May, 2007 regarding scope of enquiry in the scrutiny cases selected only on the basis of information received through the AIR returns.

2. The above mentioned guidelines have been reconsidered by the Board and it has been decided that the scrutiny of such cases would be limited only to the aspects of information received through AIR. However, a case may be taken up for wider scrutiny with the approval of the administrative Commissioner, where it is felt that apart from the AIR information there is a potential escapement of income more than Rs. 10 Lacs.

3. It has also been decided that in all the cases which are picked for scrutiny only on the basis of AIR information, the notice u/s 143(2) of Income Tax Act 1961 should clearly be stamped with “AIR Case”.

This should be immediately brought to the notice of all the officers working in your region.

Following transactions are to be reported through AIR

001 – Cash deposits aggregating to 10 lakh Rupees or more in a year in any

Savings Account of a person in any bank (including any bank or banking

institution referred to in Section 51 of the Banking regulation Act,1949)

002– Payments made by any person against bills raised in respect of a Credit

Card aggregating to 2 lakh Rupees or more in a year.

003 – Payment made by you of an amount to 2 lakh Rupees or more for

purchase of units of Mutual Fund.

004 – Payments made by you of an amount of 5 lakh Rupees or more for

acquiring bonds or debentures issued by a company or institution.

005– Payments made by you of an amount of 1 lakh Rupees or more for

acquiring shares issued by a company.

006– Purchase by you of immovable property valued at 30 lakh Rupees or

more.

007 – Sale by you of immovable property valued at 30 lakh Rupees or more.

008– Payment made by you of an amount of 5 lakh Rupees or more in a year